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Lean Grwoth: 10 Carcass Value Buying Programs

Effective marketing has taken on even greater importance with the current low hog prices. Pork producers can capture extra returns with careful marketing, without increasing their costs. All that is required is current information about the production efficiency of your hog operations.The impact of genetic type, end weight and diet on carcass traits was measured across the carcass pricing programs

John C. McKissick | Oct 01, 1998

Effective marketing has taken on even greater importance with the current low hog prices. Pork producers can capture extra returns with careful marketing, without increasing their costs. All that is required is current information about the production efficiency of your hog operations.

The impact of genetic type, end weight and diet on carcass traits was measured across the carcass pricing programs of 10 major packers. Each of the packer programs was used to evaluate each carcass produced in the Quality Lean Growth Modeling (QLGM) project.

The 10 packers accounted for approximately three-fourths of the total U.S. hog kill capacity in 1997. Each packer's carcass pricing program was available during the first half of 1998, but major changes have been made in some of the pricing programs during the latter half of this year.

This evaluation represents a "snapshot" of the total returns each carcass would have fetched had each packer used the same base price. The base carcass price is that price at which carcass characteristic discounts and/or premiums are to be applied.

Of course, each packer doesn't have the same base price. In fact, previous studies of the actual prices paid by respective packers have shown differences in their base prices to be more important in explaining differences in total carcass value than the premiums and discounts paid for carcass traits.

Therefore, the results presented here should not be interpreted as actual differences in prices resulting from various packer carcass-pricing programs. Rather, the results can help illustrate the differences in value packers may attach to the various carcass traits, reflecting the interaction of genetics, end weight and diet.

The major determinants of the premiums or discounts applied to the packer's base carcass price are carcass weight, backfat and loin muscle depth.

Carcass weight multiplied by the final adjusted price represents total carcass value. Of the 10 programs used to evaluate carcass value, seven have discounts and premiums tied to a lean meat ratio formed from the backfat and loin depth readings collected with an optical probe.

Six of the packer programs use a similar lean meat ratio formula calculated as: Percent Lean = 58.86 + (-.61 *Backfat, mm) + (.12 *Loin Depth, mm). Of these six, the lean meat ratio at which premiums or discounts were awarded ranged from a low of 47% to a high of 52.5%.

Of the remaining three packer programs, one had a separate discount and premium schedule for backfat and loin depth and two used only backfat depth measured at the last rib to determine the lean discounts or premiums.

The QLGM project carcasses resulting from each genetic line and end-weight group (250, 290, 330 lb.) were evaluated against each of the 10 packer pricing programs.

No significant difference was found between the carcass characteristics of those hogs fed diets 1, 2 and 3. However, carcasses produced from diet 4 were found to differ significantly in the characteristics that determine market value and were evaluated as a separate group. It is important to note, however, that diet 4 lysine levels were below National Research Council (NRC) recommendations and it is unlikely the diet would be fed. (Review nutritional programs, Table 7, page 24). The average measure, along with the variability in each characteristic as measured by the standard deviation within genetic line, end weight and diet group, is presented in Tables 1 and 2.

The base price level chosen for the analysis was the average Iowa/Southern Minnesota direct to packer price for the past eight years. The weekly average 1990-97 Iowa/Southern Minnesota price was $47/cwt. live or about $63.51/cwt. of carcass weight.

The resulting average carcass value across the 10 packer programs by genetic line and end weight are presented in Table 3 for hogs fed diets 1, 2 and 3 and in Table 4 for those fed diet 4. The range from the lowest packer's average carcass value to the highest is shown below the overall average of the 10 packer programs for each group.

Tables 5, 6 and 7 show the individual packer program results for each genetic line in the QLGM project fed diets 1, 2 and 3, at the three end weights (250, 290, 330 lb.) prescribed in the project.

As can be expected when the carcass base price is held constant and the end weight points are on the heavy side, the packers who allow heavier weight carcasses before applying discounts and/or those paying premiums for leanness at modest levels, will have higher carcass values.

Carcass Value Across Genetic Lines Using the 10-packer carcass value average, several observations can be made concerning genetic lines fed diets 1, 2 and 3 and fed to the three off-test weights in the QLGM project.

Only genetic lines B and E are in the high carcass value group across all end weight groups.

Genetic line A is significantly lower in carcass value than the other lines across all three weight groups. Line A pigs are afforded meat quality premiums in at least two packer programs, but those premiums were not included in this evaluation. Based on these results, the meat quality premium would have to be from $5 to $11/head to equal total returns from the other genetic lines.

Genetic line D was also initially classified as a high meat quality line. If meat quality premiums of $2 to $5/head were realized, line D would provide equal returns to the other genetic lines, except for line A.

Tables 5, 6 and 7 show that the general ranking among the 10 packer programs was consistent with the overall rankings when all were averaged.

The genetic lines which tended to have significantly higher or lower value using the average of the 10 programs also tended to have the same ranking within the same packer program. This reinforces that the premium ranges tend to be the same within each packer program. However, each packer may start the premium weight ranges at a different weight.

Meat quality premiums excluded, no genetic type showed a unique advantage at a particular packer because of their carcass-pricing program.

Value At Different Weights The profitability of feeding to differing end weights is dependent on the added return versus the additional cost of putting on the extra pounds.

Table 3 shows that the added returns from feeding to end weights of 250 to 290 lb. (diets 1, 2, 3) ranged from a low of $6.58/head for line A to $12.70/head for line C when averaged across all packer programs. While the cost for the added gains has not been calculated, it is likely that such increases in value would make the 290-lb. end weight option viable at several packers.

The viability of feeding to a heavier weight is dependent on the packer's program, however.

Tables 5 and 6 reveal that the additional carcass value from 290-lb. end weights as compared to 250-lb. ranges from a slight decrease of -$.74/head for genetics A in packer 3's program to a high of $17.51 for genetics B in packer 6's program.

The added returns from marketing at 290 lb. vs. 250 lb., by packer and genetic line, are portrayed graphically in Figure 1. It is readily apparent that the reduction in net price per pound of carcass sold, due to higher sort loss and an increase in fat, is more than made up in the additional pounds to be sold, resulting in increased total carcass value. Whether the added returns more than offset cost is the critical matter to consider.

The move from 290 lb. to 330 lb. does not appear to have a high chance for profitability for any genetic group as the 10-packer average ranged from a reduction in carcass value of -$1.76 for line A to a slight net gain of $3.21 for line B.

The average across all packer programs would not support the profitability of feeding to upper weight ranges, as feed cost alone would exceed even the highest average increase.

However, some packer programs do offer possibilities. By comparing Tables 6 and 7, it can be seen that both packer 4 and 5 show increases in carcass value averaging from $11 to $13/head for line B. Packer 4 and packer 5 have programs offering a very high upper end for heavy, relatively lean carcasses before discounts are applied. Graphically, the increase in total carcass value in moving from 290 lb. end weights to 330 lb. by packer program are show in Figure 2.

The results shown here are for one base price level. Obviously, at lower price levels, the gains from added weight will not be as great. At higher prices, they will be more. Each of the scenarios presented was duplicated at a "high" and "low" base price level. Space limitations do not allow a full discussion of these results here. However, the general conclusions are unchanged by either higher or lower price levels.

Carcass Value vs. Diet The hogs fed diet 4 differed in carcass characteristics from those fed diets 1, 2 and 3. The carcass differences could result in significant differences in carcass value. The reduction in carcass value from those hogs fed diet 4, if any, would have to be compared to any reduction in the diet's cost to determine profitability.

The return comparisons from Table 3 and 4 must be considered in light of the small numbers of each genetic line and end weight group fed diet 4 as compared to diets 1, 2 and 3. In only three of the 18 combinations of genetics and end weights did the carcasses produced from diet 4 show higher values than those fed diets 1, 2 and 3. For the other 15 categories, the reduction in carcass value ranged from about $1/head to $9/head.

Given the limited number of hogs in the diet 4 category, it can only be stated that the carcass value of those hogs fed diet 4 appears to be significantly reduced. Quantifying the real profitability difference would require additional test numbers and the individual feed cost information.

Summary It does appear that the current pricing system used by packers expresses significant value differences in the combinations of genetics, diets, end weights. The return side of the equation is only one part that must be measured against cost.

Once individual pig costs are available from the Quality Lean Growth Modeling project, a better picture of the profit implications from changes in these factors will be available.